MR SANJAY GARG vs. C I T
What did the High Court hold?
The High Court held that the Tribunal was not justified in considering the sales of Rs. 1 lakh as income in the hands of the appellant. The Court noted that the Tribunal's reasoning for reversing the CIT(A)'s order was based on the premise that Shri S.N. Garg was neither the owner nor connected with the business of M/s Kota Stone Depot. However, the appellant's counsel submitted that the Rs. 1,00,000 was accounted for in the name of S.N. Garg, who is the assessee's father, and this was established by producing his return. The Court found that this fact, if established, would invalidate the Tribunal's reasoning. Consequently, the High Court concluded that the Tribunal had wrongly sustained the addition of Rs. 1,00,000, which should have been allowed as a deduction based on the record. The appeal was allowed in favour of the assessee.
What were the facts?
The assessee, Mr. Sanjay Garg, filed his original return for Assessment Year 1994-95 on November 28, 1994, declaring an income of Rs. 64,420, which was later revised to Rs. 1,32,970 on November 30, 1994. The case was selected for scrutiny due to a search and seizure operation conducted at the residence and business premises of the Garg group. During the assessment, the Assessing Officer (AO) noted that the trading account of M/s Kota Stone Depot showed total sales of Rs. 1,44,301, with sales of Rs. 1,00,000 made under the direction of Shri S.N. Garg being deducted. The AO proposed to treat these Rs. 1,00,000 sales as the assessee's income, which the assessee failed to explain. The AO accordingly confirmed the addition, and the CIT(A) reversed this order. The Tribunal, however, reversed the CIT(A)'s order and restored the AO's order.
What were the issues?
1. Whether, under the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in considering the sales of Rs. 1 lakh as income in the hands of the appellant and whether the finding of the Tribunal is perverse (Question of law and mixed fact and law, turning on the interpretation of sales and income attribution). Assessee's Contention: The Rs. 1,00,000 addition was shown in the account of S.N. Garg, the assessee's father, as evidenced by his return produced in the paper book. Therefore, the premise on which the Tribunal disallowed the deletion was invalid. Revenue's Contention: The judgment records no specific contentions for the revenue regarding this issue, other than implicitly supporting the Tribunal's order.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
Judgment Per Hon’ble Jhaveri J. 08/02/2017
By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the assessee and while reversing the order of the CIT(A) has confirmed the order of the Assessing Officer.
This Court while admitting the appeal on 21.07.2004 has framed the following substantial question of law: “Whether, under the facts and in circumstances of the case, the Ld. Income Tax Appellate Tribunal was justified in considering the sales of Rs. 1 lakh as income in the hands of appellant and whether the finding of the Tribunal is perverse?”
(2 of 4) [ITA-78/2004]
The brief facts of this case are that the original return was filed in this case on 28.11.1994 declaring an income of Rs.64,420/- (salary income Rs.61000/-, income from business Rs.18816/- and income from other sources (-) Rs.15392/-). Thereafter, the return was revised on 30.11.1994 declaring an income of Rs.1,32,970/-. The same was processed u/s 143(1) (a) on 3.1.95 at the same figure.
The case was picked up under scrutiny being a search case. This case belongs to Garg group of cases in which search and seizure operation was carried out at the residence/business premises. Notice u/s 143(2) was issued to assessee and in response to the assessee attended the proceedings from time to time.
Necessary details as asked for have been filed by the assessee and the same are placed on record after verification. All the books of account, documents, papers relating to assessee for asstt. Year 1994-95 which were seized at the time of search have been examined. Books of account, documents, bills and vouchers relating to assessee of post search period up to 31.03.1994 have also been examined.
The assessee derives income from salary received from M/s Garg Granites (P) Ltd. And M/s Garg Marmo Tiles (P) Ltd. In which he is one of the Directors, Income from business and income from other sources i.e. interest received/paid from various firms/creditors.
(3 of 4) [ITA-78/2004]
On perusal of trading a/c reveals that total sales of marbles by M/s Kota Stone Depot, Ajmer shown at Rs.1,44,301/- and gross profit of Rs.22,236/- has been shown after deducting sales of Rs.1,00,000/- made by the firm with the direction of Shri S.N. Garg. Thus, if the sales of Rs.1,00,000/- is considered in the hands of assessee then total gross profit will come to Rs.1,22,236/-.
The assessee was specifically asked while order sheet entree dated 28.06.1995 why the sales should not be treated as his income and gross profit determined accordingly. In response to which no explanation whatsoever is offered by the assessee. Since, the value of cost of total sales is considered and included in trading account, therefore, entire sales of Rs.41,44,301/- is taken to determine the gross profit of assessee from marble purchases and sales. No details of opening/closing stock, purchases, sales have been adduced by the assessee.
Counsel for the appellant has taken us to para 5 of the order of Tribunal which reads as under:
“5. we have heard the rival submissions. We have also perused the records. From the record, we find that the difference in the stock was found as per inventory prepared in the case of Kota Stone Depot, in which Shri S.N.Garg had surrendered additional income of Rs. 1 Lakh. We do not agree with the contention of the 1d. AR of the assessee that this sum of Rs. 1 lakh is included in the surrender of Rs. 5 Lakhs in the case of Shri S.N.Garg. He could not lead any specific evidence to the facts whether a sum of Rs. 5 lakhs was inclusive of Rs. 1 lakh on account of excess sales of M/s Kota Stone Depot. Besides how can sales of the assessee be reduced by Rs. 1 lakh on the direction of a third person i.e.
(4 of 4) [ITA-78/2004] Shri S.N.Garg, who is neither owner nor connected with the business of M/s Kota Stone Depot, in any way. Therefore, we reverse the order of the 1d. Commissioner of Income-tax (Appeals) and restore that of the Assessing Officer. The order of the Assessing Officer is upheld.”
The counsel for the appellant has contended that Rs.1,00,000/- which was added to the assessee was shown to the account of S.N. Garg who happens to be the father of the assessee which has been established by the paper book which has been produced wherein the return of the father is produced on record. Thus, on the premises on which the deletion was not allowed by the Tribunal, does not survive.
In that view of the matter, the Tribunal has wrongly sustained Rs.1,00,000/- which is allowed to be deducted as per the record.
In that view of the matter, the issue is answered in favour of the assessee and against the department.
The appeal stands allowed. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. Asheesh Kr. Yadav/30
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